Stakeholders’ Views on Financing Large-scale Integrated CCUS Project in China: From Hypothetical to Real

Xi Liang CFABusiness School, University of Edinburgh

IEAGHG 4th Social Research Network Meeting – 14-15 Jan 2014

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Content

• Background

• Key Findings of Past Stakeholder Views

• Views on Financing China Resources Power 1 million tonne CCS Demonstration Project

• Summary of Findings

CCS Pilot Projects in China

• Petro China Jilin Oilfield, EOR, 100,000 t/a (2007- )

• CAS – Jinlong CO2 Chemical Utilization, 10,000 t/a (2007- )

• Huaneng Gaobeidian post-combustion capture, 3000 t/a (2008 -)

• CNOOC biodegradable plastic CO2 utilisation, 2100 t/a (2009- )

• Huaneng Shidongkou post-combustion capture, 120,000 t/a (2009- )

• Chongqing Shuanghuai post-combustion capture, 10,000 t/a (2010- )

• SINOPEC Shengli Oil Field post-combustion and EOR, 40,000 t/a (2010 - )

• Lianyuan Gang Clean Coal Energy System pre-combustion, 30,000t/a (2011- )

• Shenhua CTL capture and saline aquifer storage, 100,000 t/a (2011 - )

…

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The Development Cycle of Large-scale Integrated CCS Projects in China are all at the very early stage (2012)

(GCCSI, 2012)

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The Development Cycle of Large-scale Integrated CCS Projects in China are STILL all at the very early stage (2013)

(GCCSI, 2013)

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• Stakeholder communication is a particularly important area in formulating timely policy support and overcoming barriers associated with deploying and demonstrating CCS technologies at scale.

Source: GCCSI, 2012

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Study Name Year Sample size

Number of Responses

Data

collection method

Notable Features

BP/DTI (Reiner et al, 2007)

2006 186 115 Face-to-face, telephone

Long-term deployment, focus

on Beijing, Wuhan and Guangdong

CAPPCCO (Reiner and Liang, 2009)

2008 202 103 Face-to-face, telephone

Industry opinions and

stakeholder behavioural patterns

HIT Study (Liang and Wu, 2010)

2008 37 31 Face-to-face Barriers and incentives for CCS deployment (industry focus)

STRACO2 (STRACO2, 2009)

2009 60 35 n/a Technology and policy preferences

NZEC (Liang et al,

2011; Reiner and Liang, 2012)

2009 256 140 Online, face-to-face

Commercial CCS Demonstration

GDCCSR (Li et al, 2012)

2010 82 31 Online, focus group

CCS Ready, focus on Guangdong

Energy Security

(Liang and Reiner, 2012)

2011 38 23 Face-to-face CCS and energy security

Core Deployment Barriers

2012 141 59 Online, face-to-face

Opportunities and barriers for deploying CCS at large-scale

IEA GHG

(Li et al, 2013)

2013 21 12 Email and

Telecom

Impact of Impurities on

Operating CCUS Project

GDICCUS (Liang et

al, 2013)

2014 15 11 Face-to-face Financing Large-scale

Integrated CCUS Project

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Views on CCS as a Measure to Reduce Emissions

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The Trend: Key Findings from Past Stakeholder Consultations in China: 2006-2009 (1)

• Stakeholders were much more concerned with climate change

• There is still no overwhelming consensus on the role of CCS in a Chinese low carbon energy portfolio, although more acknowledge its potential role in reducing emissions

• Chinese national government and state-owned company stakeholders have better understandings on CCUS and started to develop policy to support CCUS

• The preference for CO2 storage remains focus on enhanced hydrocarbon recovery

• Offshore CO2 storage is prioritised for industrial areas along the coast and well developed provinces

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The Trend: Key Findings from Past Stakeholder Consultations in China (2)

• Less stakeholders prioritise pre-combustion capture technologies in 2012 compared to 2009

• The impact of energy penalty on long-term energy supply and national energy efficiency is a key barrier to implementing CCS

• The prioritised risks of CCS process have gradually aligned with the preferences of European stakeholders

• Chinese stakeholders had expected international support to provide a majority of incremental cost for CCS but the expectation was diminishing as fewer stakeholders considered that to be realistic by 2012.

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The Next Step: Financial Investment Decision for Large-scale Integrated CCUS Project in ChinaUnderstand how to Finance a Large-Scale Integrated CCUS Project in China

Source: Yang, 2013

UK-China CCUS MoU Signature at Lancaster

House, in London on 27 Sep 2013

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China Resources Power (Haifeng) 8 x 1GW USCPC Project (Montage)

Source: Zhu, 2013

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China Resources Power (Haifeng) 1 Million Tonne CCUS Project Plan Map (capture from unit 3 of the project and store CO2 in offshore saline aquifer)

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List of Institutes Invited for Project Financing Face-to-Face Survey in Nov and Dec 2013 (Stakeholders were given the project introduction 2 weeks prior to the interview)

Institute Name Type of Business Region ResponseChina Development Bank Public China YesAsian Development Bank International Multilateral YesChina Export Import Bank Public China No

The World Bank International Multilateral NoPudong Developmet Bank Commercial China Yes

Bank of China State-owned China YesChina Merchant Bank Commercial China Yes

China Construction Bank State-owned China YesPingan Bank Commercial China Yes

China Industrial Bank Commercial China YesCITIC International Finance Commercial HK Yes

CITIC Bank Commercial China YesGuangdong Development Bank Province-owned China Yes

China Communication Bank State-owned China NoMinistry of Finance CDM Fund State-owned China No

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Review: Scatter diagram of hurdle rate and equity capital ratio

for the extra investment needed for capture facilities (2009)N=16

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Scatter diagram of hurdle rate and equity capital ratio for the extra investment needed for large-scale capture facilities at CRP Haifeng Project (Red Dots, n=11)

Blue Dots were responses from NZEC 2009 Survey (n=16)

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Perceptions of Increased Risks (2006 – 2012)

• 2006: Stakeholders concerned a number of key risk exposures from a specified list: ‘CO2 leakage from storage site’, ‘ecological impact of CO2

leakage’, ‘human health’, ‘water pollution’, and ‘soil degradation’.

• 2009: More than three quarters of stakeholders prioritised ‘natural disaster’, ‘carbon market’ and ‘climate policy’ risks while more than 50% expressed concerns over ‘credit risk’, ‘regulatory risk’, ‘health and safety’, and ‘lack of knowledge’.

• 2012: (a) ‘CO2 leakage from storage site’, ‘cost of CO2 capture’, and ‘interruption risks along the CCS chain’ were cited as the three most popular risk exposures during the follow-up interviews. (b) There are growing challenges in overcoming public perception in planning coal-fired power plants in China. Public perception is has long been considered a key barrier for developing new CCS projects in Europe but a large majority of Chinese stakeholders (78%) considered CCS as having ‘positive’ or ‘very positive’ impacts on siting new thermal power plants.

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Risk Categories Discussed during Interviews on Financing CRP

(Haifeng) CCUS Project (2013)

Source: Revised based on ClimateWise, 2012

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Top 10 Prioritized Risks in Financing CRP Haifeng Project (2013, n=11)

Risk CategoryScore (1-10; 10:

most risky; 1: least risky)

Type of Risk

CO2 Leakage 7.6 OperationalEnergy & Carbon Price 7.2 Market

Change in Law & Regulation 7.2Policy, Legal and

RegulatoryTransportation: Health and Safety 6.9 Operational

Environmental Damage 6.8 OperationalCapital Cost 6.5 Market & Operational

Value Chain Integration 6.2 Credit & OperationalStorage: Health and Safety 6.1 Operational

Pipeline Leakage 6.1 OperationalTransport: Health and Safety 5.9 Operational

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Perceived Effectiveness of Potential Incentives in Financing the CRP CCUS Project (score: 1 -10; 10: most effective; 1: least effective)

0 2 4 6 8 10

Carbon Market

Capital Grant

Feed-in-tariff

Priority Despatch

Carbon Tax

Emission Standard

Tax Return

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Summary of Findings

• Chinese stakeholders have better understandings on CCUS in the last 7 years, but some of them still worry the impact of significant extra cost and energy penalty on Chinese energy system and economy.

• Chinese national government (NDRC, MOST and MOEP) started to formulate policy to support a few CCUS demonstration projects and demonstration bases.

• Some Chinese bankers expressed enthusiastic in financing early CCUS demonstration projects, based on a real project proposal in Guangdong. They generally demonstrate high risk appetite for new clean energy technologies.

• The risk return appetite for real projects are somewhat different from earlier hypothetical studies.

• There is no comprehensive policy support framework for financing large CCUS projects in China, but Carbon market, capital grant and feed-in-tariff are most popular choices.

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References

• GCCSI (Global Carbon Capture and Storage Institute), 2012. The Global Status of CCS: 2012. Available at http://cdn.globalccsinstitute.com/sites/default/files/publications/47936/global-status-ccs-2012.pdf (accessed 13/Oct/2012

• GCCSI (Global Carbon Capture and Storage Institute), 2012. The Global Status of CCS: 2013• Johnsson, F, Reiner, DM, Itaoka, K, Herzog, HJ. Stakeholder attitudes on Carbon Capture and Storage – An

International Comparison. Intl J Gh Gas Ctl 2010;4:410-8. • Li, J, Liang, X, Cockerill, T, Gibbins, J., Reiner, DM. Opportunities and Barriers for Implementing CO2 Capture

Ready Designs: A Case Study of Stakeholder Perception in Guangdong. En Pol 2012;45:243-51. • Liang, D, Wu, W. Barriers and incentives of CCS deployment in China: results from semi-structured

interviews. En Pol 2009;37:2421–2432. • Liang, X, Reiner, DM, 2012. Tensions between CCS Deployment and Energy Security in China. Submitted to

Energy Policy. • Reiner, DM, Liang, X, Sun, X, Zhu, Y, Li, D. Stakeholder Attitudes towards Carbon Dioxide Capture and

Storage Technologies in China, International Climate Change Conference, Hong Kong, May 29-31 2007.• Liang, X, Reiner, DM, Li, J. Perceptions of opinion leaders towards CCS demonstration projects in China.

Appl Energy 2011;88:1873-85. • Reiner, DM, Liang, X. Stakeholder Views on Financing Carbon Capture and Storage Projects in China. Envtl

Sci and Tech, 2012;46:643-51. • Reiner, DM, Liang, X. Opportunities and Hurdles in Applying CCS Technologies in China – with a focus on

industrial stakeholders. En Proc 2009;1:4827-44. • Shackley, S, Waterman, H, Godfroij P, Reiner, DM, Anderson, J, Draxlbauer, K, Flach, T. Stakeholder

perceptions of CO2 capture and storage in Europe: Results from a survey. En Pol 2007;35:5091-108.• STRACO2 (Support for Regulatory for Carbon Capture and Storage). Support to Regulatory Activities for

Carbon Capture and Storage. Final report. 2009 Available at: /http://www.euchina-ccs.org/media/ docs/Final_Report_STRACO2.pdf (accessed 12/Jun/2012)

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Thank you!

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The pace of CCS development in China compared with developed countries (2012)

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Highlight of Recent Developments

• Interest on CO2 Utilisation• Offshore CO2 storage demonstration• NDRC support notice• Regional CCS Roadmap • Regional CCS Ready Regulation• Discussion on CO2 Storage Regulation• Debate / Interest on Gasification

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Review: Policy Drivers in Financing (1)

• In the 2006 study, whether CCS could qualify for CDM (Clean Development Mechanism) credit was considered as a critical factor of implementing CCS.

• In 2009, (a) ‘Demonstrate the Chinese government’s efforts in combating climate change’ and ‘creating an advantage for Chinese companies investing in CCS’ were considered to be two key benefits of demonstrating CCS at scale in China. (b) There were widely divergent views on the hurdle rates for demonstrating CCS projects (i.e. from 5% to 20%) ; (c) gave hope to ‘foreign government support’, ‘development bank loan’ and ‘policy loan’ (Reiner and Liang, 2012). (c)

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Review: Policy Drivers in Financing (2)

• In 2012: (a) The most important drivers of deploying CCS in China was deemed to be ‘Improving the Chinese government’s international credibility in combating climate change’ (average of 3.8 on a scale of 1-5), followed by EOR (3.6) and ‘achieving a deep cut in greenhouse gas emissions in China’ (3.5). (b) more than half of the stakeholders in the follow-up survey acknowledged that support by foreign governments is not likely to be realistic in funding the first large-scale CCS demonstration projects in China.